Do you know the risks to your business?

This article will ... Point out the four areas of risk that business owners should think about. Note that there are ways to mitigate risks to your business. Detail MassMutual research identifying where business owners are falling short when it comes to risk.

The goal of every business owner is to build and grow a successful business. And when owners view their businesses as an asset, they have the ability to build something with tremendous value that can one day be sold and monetized for themselves or future generations. However, the one thing that can get in the way of this potential reality is risk.

Risk is defined as an event or circumstance, oftentimes unforeseen, that has a prolonged negative effect on the business. Types of risk vary from business to business and industry to industry. You must decide how much risk you are prepared to take on in your business,

and potential acquirers will value your business based on how much risk they will have to assume when you leave.

As a business owner, you should consider the four risk pillars:

• Your family: Helping to ensure that your protection planning extends beyond the business and to your family and heirs by protecting your income stream, being fair and equitable regarding the distribution of your estate, and effectively managing debt.
• Your Business: Understanding the steps you can take to help mitigate some of the risks that can threaten the viability of your business by drafting and properly funding a buy-sell agreement, protecting against the loss of a key employee, and eliminating owner dependencies inside the business.
• Your Team: Understanding the importance of encouraging top talent to stay loyal and attracting new talent to the business by offering employer-sponsored retirement plans, providing selective benefit packages to top performers, and selecting and training the appropriate successor to the business. (Related: Employee retention tips)
• Your Future: Helping to ensure that the income and lifestyle you’ve become accustomed to as a business owner can still be achieved when you leave the business by building a retirement income strategy, focusing on growing business value, and understanding the different ways to transition the business.

Mitigating all or at least some of these risks can go a long way toward achieving your goals as a successful business owner.

New research highlights business owners’ exposure to risk

MassMutual recently conducted a Planning For the Unexpected Research Study of business owners to better understand what products or solutions they have in place to help mitigate these risks.

Unfortunately, many business owners have areas of exposure in terms of their business, personal, and financial pictures. Here’s what we learned:

1. Only about half of today’s business owners are adequately prepared for a long-term downturn in the economy. Of those with an emergency fund in place, two-thirds say it would last four to twelve months. Even still, one-third say they would be forced to cut back staff in the event of a long-term downturn.
2. Only one-third of business owners have a plan to place to protect themselves from the potential loss of income. Over half of business owners state that if they were to become disabled, they would simply stay on the payroll and continue receiving their salary. Furthermore, nearly half say they would run out of income if they were forced out of the business for more than a year.
3. Only one-in-four business owners have a plan in place to protect the business from the loss of a key employee. In addition, one-third of owners say their businesses would suffer if a key employee were to leave the company, and less than half say they have other employees who could step in and cover the loss of revenue felt by a key employee leaving. (Related: Are you doing enough to protect your highest earners?)
4. One-third of business owners say they could not maintain their current lifestyle in retirement if they sold the business today. And while 84 percent believe they could sell their businesses at a premium or for market value, only 54 percent say the proceeds from the sale of the business would fund their lifestyle for more than 10 years.

Your business isn’t just your largest asset; it provides income for your family and the families of your employees, a legacy for the next generation, and is a pillar in your community.

And while starting and running a business is inherently risky, understanding the value of your business and learning about products like disability income insurance and key person life insurance can be a great way to start protecting what you’ve worked so hard to build.

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